REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility investment based on the BPU's approval, in accordance with accounting guidance applicable to regulated operations. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities.

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:



(Thousands)	December 31, 2013		September 30, 2013
Regulatory assets-current
Conservation Incentive Program	$	15,080	$	18,887
Underrecovered gas costs	—		953
New Jersey Clean Energy Program	12,809		14,532
Total current	$	27,889	$	34,372
Regulatory assets-noncurrent
Environmental remediation costs
Expended, net of recoveries	$	41,762	$	46,968
Liability for future expenditures	183,600		183,600
Deferred income taxes	10,718		10,718
Derivatives at fair value, net	—		19
SAVEGREEN	29,673		30,004
Postemployment and other benefit costs	99,722		101,415
Deferred Superstorm Sandy costs	14,870		14,822
Other	10,664		14,656
Total noncurrent	$	391,009	$	402,202
Regulatory liability-current
Overrecovered gas costs	$	6,016	$	—
Derivatives at fair value, net	6,551		1,456
Total current	$	12,567	$	1,456
Regulatory liabilities-noncurrent
Cost of removal obligation	$	76,772	$	79,315
Other	618		332
Total noncurrent	$	77,390	$	79,647

NJNG's recovery of costs is facilitated through its base tariff rates, BGSS and other regulatory tariff riders. As recovery of regulatory assets is subject to BPU approval, if there are any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to income in the period of such determination.

Recent regulatory filings and/or actions include the following:


•	On September 18, 2013, the BPU approved NJNG's filing to reduce the USF recovery rate resulting in a .5 percent decrease for the average residential heating customer effective October 1, 2013, with an annual impact of approximately $3.8 million.


•	On October 16, 2013, the BPU provisionally approved NJNG's filing to maintain its current BGSS rate along with reductions to its CIP factors effective November 1, 2013 which resulted in a 1 percent reduction to an average residential heat customer's bill, with an annual impact of approximately $7.4 million.


•	On November 21, 2013, NJNG notified the BPU of its intent to reduce its BGSS rate, effective December 1, 2013, resulting in a 6 percent decrease to the average residential heating customer bill, with an annual impact of approximately $29.4 million.

•

On November 22, 2013, the BPU provisionally approved a Stipulation of Settlement for SBC factors that included a reduction in the SBC RA factor to recover $18.7 million annually in MGP expenditures through June 30, 2013, and an increase to its NJCEP factor for a net increase of 1.7 percent to the average residential heat customer effective December 1, 2013, with an annual impact of approximately $12.9 million.


•	On December 18, 2013, the BPU approved a gas service agreement which will allow NJNG to provide transportation service to Red Oak Power, LLC, an electric generation facility, through September 2022.